Why it is necessary to have confidence in the banking system

The recent Bank of England action is completely necessary though wrong in terms of moral hazard. In order to understand why this is the case i exhort you to read John Tomlinson’s paper which is in the research section or here. In his paper  he explains how a bank works in terms of taking in deposits and lending out money. He dissects carefully the balance sheet of Barclays Bank and shows how solvency is merely a trick of the imagination.

Of course readers of this blog will already know that money is merely a ficition, one with a deep and dark history. As Trevor commented in the previous post, the general public relies on he integrity of the system and the honesty of those who operate it.

Can we have confidence in those people? I think not. Not because they are dishonest  but because they refuse to acknowledge a system that is unstabl, inequitable and ultimately inefficient.

Please read and ask questions, comment, spread the word and ponder.  What does your money mean? Do you really have any savings, wealth or assets? Don’t rely on the system to support you. It has failed regularly since the Bank of England was first formed and wil l continue to do so until some serious surgery has been performed.

Astonishing news: Bank of England changes the rules

I just heard this news an hour ago and frankly was astounded. The Bank of England will ,if necessary, guarantee all deposits held with Northern Rock. This a major change to the current depositors insurance scheme.

Wow! In a stroke they have just removed any risk from the banking system. They have in effect nationalised Northern Rock without actually doing so.

Actually this is a good thing since it further exposes the myth behind our banking system. Mind you they didn’t rush to bail out the depositors of BCCI  when that failed.

So where to from here? Well that’s anyones guess but this wont finish here even with the  blank cheque provided the the Old Lady.

Max Hastings writes a lovely piece here. Finally as the party comes to an end and the hangover kicks in, will there be some reason?

I hope so. It is a great opportunity to look closely at the money system we currently have. Do not look to our central bankers to provide the lead or even our politicians. We the people will have to provide ideas, answers and solutions on how to proceed. The monetary reform movement has been growing by the day and now it is time to stand up and be heard.

Panic on the Streets: Banking system under stress

I’m in Europe for a month, making my first trip back since heading to live in NZ nearly 6 years ago. Currently i’m having a lovely time in Southern Spain in a pretty little village called Benahavis.

Watching the UK news is so different: small soundbites, nothing too deep and its making me dizzy. But not as dizzy as those pictures of people queuing up at their local Northern Rock to get all their money out.

They seem so calm about it without quite realising the ramifications of their actions. A run on a major bank in the UK? Who would have thought it could happen in the modern well regulated era.

We have seen finance companies in NZ topple over like dominoes but the general public has taken the view that they were accidents waiting to happen and that people should have taken more care in what they were investing in. But a major financial institution would be a different story.

For money reformers the recent credit crisis was inevitable, a product of the incessant growth in the global money supply. How it will play out is anyone’s guess but there has never been a better time to expose the weakness and corruption at the heart of our money systems.

In the meantime people should check to make sure they do not have to much exposure to any single financial entity. What is amazing to me is how the stock markets have proved so resilient. There is lots of talk about the strength of the underlying economy but the effects of these recent months will take a long time to feed through.

I have a feeling this story has a long way to go.

Credit crunched

Another day, another finance company. Haven’t i written that before? Maybe but my memory is becoming blurred as groundhog day for the credit system is on a repeat cycle.

What we have now is an old fashioned run on finance companies. Clearly anyone who can read a balance sheet can see they don’t carry much cash so if you rock up asking for your money back you may be waiting for some time. Of course you should have checked that before you invested. As some argue this is a good cleaning out process which is long overdue.

Why should the RB bail them out? Well i would argue the RB is not worried about fnance companies going under but more concerned about the financial system freezing solid. So they opened their wallet and the banks were more than happy to plunder. But the poor finance companies can’t access this cash.

So here’s a story from a few years ago (verbatim from Fred Harrison’s “Boom Bust: House rices, Banking and the Depression of 2010″:

In 1794 “the City Council of Liverpool faced a complete collapse in the local banking system. On March 20, the Mayor reported that 58 merchants urged the council to secure a loan from the Bank of England to enable the City to survive “the distress which had engulfed the people”. Parliament issued a special Act which entitled Liverpool to issue negotiable notes for a limited period, to be lent at a rate of interest slightly below 4.5%. The citizens weathered the storm, thanks to what the Webbs described as “the boldest financial step recorded in the annals of English local government.

What caused this trauma? Speculation focused on the rent-yielding opportunities presented by canals”.

Oddly enough the same thing happened in 1812, 1830, 1848, 1866….and on and on.

As Samuel Taylor Coleridge wrote in 1817, in his Lay Sermon booms and bust seemed to occur “at intervals of about 12 or 13 years each {as a result of} certain periodical Revolutions of Credit”.

Thanks Fred for this great piece of research. Let’s hope the central bankers read it and then weep voraciously.